Meta Platforms (META 3.77%) is a top social media company which routinely generates billions in profit each quarter. But as with any growth-oriented business, it's eyeing the next big opportunity. And right now, its sights appear to be set on artificial intelligence (AI). The company has its own chatbot, but it's looking at making it more widely available, which could unlock a new growth opportunity for the business.
While it may not seem like a top AI stock to own, Meta is trying to change that impression. Could this stock be an underrated option for AI investors to consider today?
NASDAQ: META
Key Data Points
Meta to launch a stand-alone AI app
Meta already has four robust applications in its portfolio, including WhatsApp, Facebook, Messenger, and Instagram. Later this year, it's planning to add to that list with the launch of Meta AI. Its chatbot is already available on the web and within its current apps but not as its own stand-alone app.
Not only should this improve visibility for the chatbot, but it may also unlock a potential new revenue stream for the business. ChatGPT, for instance, has monthly subscription options available to users who want faster and better access to its chatbots. Meta could do the same.
Will Meta AI be able to compete against other chatbots?
The big test will be how well Meta AI compares to other chatbots. While Meta boasts that there are 700 million active monthly users of Meta AI, it has the benefit of including its chatbot within its already popular apps, which have billions of people using at least one of them every day. That gives Meta's AI a huge user base to tap into and a big advantage over other chatbots. Meta AI is available online, but its website generates less than 10 million views per month according to recent data.
Whether users will use Meta AI if it's not part of an existing app they already use will be the big question. In other words, will they go out of their way to download Meta AI as its own app rather than ChatGPT or another highly popular chatbot? By launching its own app, it will enable investors to get a more direct way to compare how Meta AI fares against other chatbots by looking at the number of downloads.
While it is available via the web, many users may not be aware of that fact. But within an app store, it can be available side by side with other chatbots, and then it can be evident if people are picking Meta AI over other options.
Why I'm not optimistic that AI will be a game changer for Meta
Meta has impressive financials which can enable it to spend heavily on AI. Last year, it reported more than $62 billion in profit, which rose 59% year over year. And that's even with the company incurring $18 billion in losses on its Reality Labs division, which focuses on the metaverse.
But simply spending aggressively may not lead to Meta being a winner in AI. The company has often chased the latest trends, with the best example being its name change to Meta Platforms in 2021 to reflect its ambitions for the metaverse. That hasn't paid off yet and may never be anything more than a money pit for the business.
My concern is that AI could prove to be another money-losing venture for the business. And with many other chatbots to compete with, Meta may need to spend heavily to win over users who aren't already using one of its apps. That's why I wouldn't buy the stock for its potential in AI -- it still has a lot to prove.
Trading at 26 times its trailing earnings, Meta stock isn't overly expensive, but it's not incredibly cheap, either. Ultimately, it's not an investment I'd rush to put in my portfolio as heavy spending and investments into AI could hinder its potential for long-term profit growth, and it's debatable how much of a payoff the company will get from its efforts.
